Q1 2025 American Coastal Insurance Corp Earnings Call
Operator: Greetings, and welcome to the American Coastal Insurance Corporation First Quarter 2025 Earnings Conference Call and Webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad.
Greetings and welcome to the American Coastal Insurance Corporation first quarter 2025 earnings conference call and webcast. At this time all participants are in a listen only mode.
If anyone should require operator assistance. Please press star zero on your telephone keypad.
A question and answer session will follow the formal presentation.
Operator: Our question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star 1 on your telephone keypad. As a reminder, this conference is being recorded.
If you can maybe plays into questions any time by pressing star one on your telephone keypad.
As a reminder, this conference is being recorded.
Karin Daly: It's now my pleasure to turn the call over to your host, Karin Daly with the Equity Group. Please go ahead, Karin. Thank you, Kevin, and good afternoon, everyone.
Speaker Change: Now my pleasure to turn the call over to your host Karen Daily with the equity group. Please go ahead Karen.
Karen Daily: Thank you Kevin and good afternoon, everyone American coastal insurance Corporation has also made this broadcast available on its website at www dot and coastal dot com a.
Karin Daly: American Coastal Insurance Corporation has also made this broadcast available on its website at www.amcoastal.com. A replay will be available for approximately 30 days following the call. Additionally, you can find copies of the latest earnings release and presentation in the investor section of the company's website.
Karen Daily: A replay will be available for approximately 30 days following the call.
Karen Daily: Additionally, you can find copies of our latest earnings release and presentation in the investors section of the company's website.
Karen Daily: Speaking today will be president and Chief Executive Officer, Bennett, Bradford March and Chief Financial Officer spent lot of capital.
Karin Daly: Speaking today will be President and Chief Executive Officer Bennett Bradford Martz and Chief Financial Officer Svetlana Castle. On behalf of the company, I'd like to note that the statements made during this call that are not historical facts are forward-looking statements. The company believes these statements are based on reasonable estimates, assumptions, and plans. However, if the estimates, assumptions, or plans underlying the forward-looking statements prove inaccurate, or if other risks or uncertainties arise, actual results could differ materially from those expressed in or implied by the forward-looking statement. Factors that could cause actual results to differ materially may be found in the company's filings with the U.S.
Karen Daily: On behalf of the company I'd like to note that statements made during this call that are not historical facts are forward looking statements. The company believes these statements are based on reasonable estimates assumptions and plans. However, if the estimates assumptions or plans or underlying the forward looking statements prove an accurate or.
Karen Daily: to the rise, actual results could differ materially from those expressed in or implied by the Royal Booking Statement.
Karen Daily: Factors that could cause actual results to differ materially may be found to the company's filings with the U.S. Securities and Exchange Commission in the risk factor section of their most recent annual report on form 10K and subsequent quarterly reports on form 10Q.
Karin Daly: Securities and Exchange Commission in the risk factors section of their most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q.
Karin Daly: forward-looking statements speak only as of the date on which they are made and accept as required by applicable law, the company undertakes no obligation to update or revise any forward-looking statement.
Karen Daily: Forward-looking statements speak only as of the date on which they are made, and except as required by applicable law, the company undertakes no obligation to update or revise any forward-looking statements. With that, it's my pleasure to turn the call over to Brad Martz.
Bennett Martz: With that, it's my pleasure to turn the call over to Brad Martz. Thank you, Karin. Today I am pleased to report American Coastal continued to deliver exceptional results during the first quarter by hitting our target combined ratio of 65% and also producing a core return on equity of over 34%. We successfully grew our policies in force approximately 6% since year end, with premiums in force as of March 31, 2025, totaling approximately $661 million. New business growth combined with solid renewal account retention of approximately 88% helped increase gross premiums written by over 7% compared to the same period last year.
Thank you, Karin.
Karen Daily: Today I am pleased to report American Coastal continued to deliver exceptional results during the first quarter by hitting our target combined ratio of 65 percent and also producing a core return on equity of over 34 percent.
Karen Daily: We successfully grew our policies in force approximately 6% since year-end with premiums in force as of March 31st, 2025, totaling approximately 661 million.
Bennett Martz: The Florida condominium market has continued to generate media attention this year, focused primarily on declining affordability and resale value. We acknowledge and certainly understand such issues can be challenging. but they are not having a significant impact on our business. The market for older high rise waterfront condos in Florida, where most of the concerns lie. But that is not our target market. Conversely, the underwriting environment for newer, well-maintained, low-rise, garden-style condos further inland in Florida, where American Coastal is focused, remains relatively healthy and competitive. This is evidenced by the fact that we are currently open to new business and passing on savings in the form of lower rates to our policyholders without sacrificing margins that allow us to underwrite this risk.
Karen Daily: The Florida Condominium Market has continued to generate media attention this year, focused primarily on declining affordability and refill values.
We acknowledge and certainly understand such issues can be challenging.
Karen Daily: But they are not having a significant impact on our business. The market for older, high-rise, waterfront condos in Florida were most of the concerns lie.
Karen Daily: But that is not our target market. Conversely, the underwriting environment for newer, well maintained, low-rise, garden-style condos, further inland in Florida where American Coastal is focused remains relatively healthy and competitive.
Karen Daily: This is evidenced by the fact that we are currently open to new business and passing on savings in the form of lower rates to our policyholders without sacrificing margins that allow us to underwrite this risk.
Bennett Martz: Next, I'd like to offer a quick progress update on our Core Catastrophe Reinsurance Program Renewal, effective June 1, 2025. Page 12 of our earnings presentation provides an overview of the projected structure. At this point, we are now 100 percent placed, except for a new top layer shown on this page as Layer 5, which was recently firm ordered to the market and is in the process of being finalized. Assuming we end up placing 100 percent of that top layer, that would bring our estimated first event limit up approximately 16 percent from the 1.16 billion last year to approximately 1.35 billion this year.
Karen Daily: Next, I'd like to offer a quick progress update on our core catastrophe re-insurance program renewal effective June 1st, 2025. Page 12 of our earnings presentation provides an overview of the projected structure.
At this point, we are now 100% placed.
Karen Daily: except for a new top layer shown on this page as layer 5, which was recently firm ordered to the market and is in the process of being finalized.
Karen Daily: Assuming we end up placing 100% of that top layer, that would bring our estimated first event limit up approximately 16% from the 1.16 billion last year to approximately 1.35 billion this year.
Bennett Martz: Our aggregate protection for multiple events is also expected to increase pretty significantly, about 32% year-over-year, given the new drop-down features of the two top layers. ACIC is buying significantly more protection this year due to both exposure growth and a more conservative view of hurricane risk. Last year, we disclosed our program exhausted at roughly the 208-year return time using an equal blend of AIR version 10 and RMS version 22, and if you use that same model view on our expected renewal this year, the exhaustion point increases to close to the 250-year return time. However, our updated view of risk incorporates the new versions of both AIR and RMS in the return time shown on this page, so that obviously distorts the comparability.
Karen Daily: Our aggregate protection for multiple events is also expected to increase pretty significantly about 32% year-over-year, given the new drop-down features of the two top layers.
Karen Daily: ACIC is buying significantly more protection this year due to both exposure growth.
and a more conservative view of hurricane risk.
Karen Daily: using an equal blend of AIR, version 10 and RMS, version 22, and if you use that same model view on our expected renewal this year, the exhaustion point increases to close to the 250-year return time.
Bennett Martz: Our first event retention is expected to increase from approximately $20.5 million last year to $29.75 million this year, but it is similar to last year's percentage of stockholders' equity. For three full retention events, we expect to retain. $52 million, up from $46.5 million last year, but this is down as a percentage of our equity. We are extremely grateful for the broad support we received this year from our reinsurance partners, and the risk-adjusted reinsurance rate decrease, estimated at approximately 12%, is consistent with the rate decreases we're currently sharing with our policyholders. The risk-adjusted rate decreases did vary by layer between 10% and 22%.
Karen Daily: A precedent retention is expected to increase from approximately 20.5 million last year to 29.75 million this year, but it's similar to last year as a percentage of stockholders' equity.
Karen Daily: $52 million, up from $46.5 million last year, but this is down as a percentage of our equity.
Karen Daily: We are extremely grateful for the broad support we received this year from our re-insurance partners, and the risk adjust to re-insurance rate decrease, estimated at approximately 12%, is consistent with the rate decreases we're currently sharing with our policy holders.
Karen Daily: The risk-adjusted rate decreases did vary by layer between 10 and 22% with the first layer being flat due to Hurricane Milton.
Bennett Martz: with the first layer being flat due to Hurricane Milton.
Bennett Martz: Overall, we're very pleased with the 6-1 renewal progress, and we will have more detail regarding it in an 8-K filing within a couple of weeks.
Karen Daily: Overall, we're very pleased with the 6-1 renewal progress and we will have more detail regarding it in an AK filing within a couple of weeks.
Svetlana Castle: I'll now turn it over to our CFO, Svetlana Castle, for more specifics on our first quarter report. Thank you, Brad, and hello. I'm Lana Castle, Chief Financial Officer of American Coastal Insurance Corporation, and I'll provide the financial update, but encourage everyone to review the company's press release, earnings and investor presentations, and Form 10-Q for more information regarding our performance. As reflected on page five of the earnings presentation, American Coastal demonstrated another strong quarter with net income of $21.3 million. Core income was $20.7 million, a decrease of $3.7 million year-over-year due to increased policy acquisition costs partially offset by higher gross premiums earned as we execute on our plan of measured growth with a focus on risk selection, and decreased seeded premium earned from the step down of our gross catastrophe quarter share from 40% to 20% effective June 1st, 2024.
Speaker Change: I'll now turn it over to our CFO , Lana Castle, for more specific center-first quarter results.
Thank you.
Speaker Change: Thank you, Brett and Hello. I'm Lana Castle, chief financial officer of American Coastal Insurance Corporation. I'll provide the financial updates, but encourage everyone to review the company's press release, earnings and investor presentations, and form 10Q for more information regarding our performance.
Speaker Change: As reflected on page 5 of the earnings presentation, American Coastal Demons failed it another strong corridor with net income of 21.3 million.
Speaker Change: Corps Income was 20.7 million, a decrease of 3.7 million year-over-year due to increased policy acquisition costs partially of that by higher gross premiums aren't as the executional plan of measured growth with a focus on risk selection.
Speaker Change: and Decreased Ceded Plenum Armed from the step-down of our growth catastrophe quarter share from 40% to 20% effective June 1, 2024.
Svetlana Castle: Page 6 of the presentation shows that net premium earned grew 9% to $68.3 million. As Brad mentioned, our combined ratio was 65% in line with our previously stated target. Our non-GAAP underlined combined ratio, which excludes current year catastrophe losses and prior year development, was 68.2%. We continue to feel our reserve position strong. As shown on page 6 of our presentation, operating expenses increased $12.1 million. This was primarily driven by a $13.9 million, or 144.8% increase in policy acquisition costs due to a decrease in seeding commission income because of the quarter-share stepdown mentioned earlier, and increased management fees paid related to a quarter-over-quarter premium during an administrative expense of $0.3, decreasing $1.8 million, or 15.9%.
Speaker Change: page 6 of the presentation shows that net premium on to grown 9% to 68.3 million.
Speaker Change: As Brad mentioned, our combination ratio was 65% in line with our previous stated target.
Speaker Change: Anon Gap Underland Combineration, which excludes currently a catastrophe losses and prior year development was 68.2%. We continue to feel our reserve position is strong.
Speaker Change: As shown on page 6 of our presentation, operating expenses increase 12.1 million.
Speaker Change: Due to a decrease in seeding commission income, because of the quarter share step-down mentioned earlier and increased management fees paid related to what are all the quarter premium roles.
Speaker Change: Gerino and administrative expenses of third place, decreasing 1.8 million or 15.9 percent.
Svetlana Castle: Page 7 shows balance sheet highlights. Passion Investments grew 5.2% to $540.8 million, reflecting the company's strong liquidity position. Our cash position strengthened further in April following the proceeds from the inter-borrow sale of $26.5 million, which were higher than expected. Stockholders' equity increased 10.7% to $260.9 million driven by our first quarter income. Book value per share is $540, a 10.4% increase from year-end 2024.
Speaker Change: page 7 shows balance sheet highlights. Fashion investment grew 5.2% to 540.8 million reflects on the company's strong liquidity position.
Speaker Change: Our cash position transfers through the in April , following the proceeds from the Interboro sale of 26.5 million, which were higher than expected.
Speaker Change: Stockholders Equity increased 10.7% to 260.9 million, even by our first quarter income.
Speaker Change: Bukwa Zupasher is 540, at 10.4% increase from year-end 2024. The company continues to be in a strong position to execute on its 2025 growth initiatives.
Svetlana Castle: The company continues to be in a strong position to execute on its 2025 growth initiative.
Bennett Martz: I'll now turn it over to Brad Martz for closing remarks. Thanks, Svetlana. I'll just note, as always, we appreciate your interest in American Coastal.
Speaker Change: I'll now turn it over to Brad Martz for closing remarks.
Brad Martz: Thanks, Lana. I'll just note, as always, we appreciate your interest in American Coastal that really completes our prepared remarks for today's call. We're now happy to take any questions.
Bennett Martz: That really completes our prepared remarks for today's call. And we're now happy to take any questions.
Operator: Thank you, and now we'll be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. for participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. One moment, please, while we pull for questions.
Speaker Change: Thank you and I'll be conducting a question and answer session. If you'd like to be placed in the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it would be necessary to pick up your handset before pressing star 1. One moment, please, while we pull for questions. Our first question is coming from Greg Peters from Raymond James. Your line is now live.
Greg Peters: Our first question is coming from Greg Peters from Raymond James, your line is now live. Hey, great. Good afternoon.
Bennett Martz: Can we go to page nine of your investor deck? and which is the, you know, the rate trend and when deductible. Give us some color to explain to us what's going on in this chart because It looks like it's down, but I just want to make sure I'm reading the chart right. Sure, Greg. Happy to. So the red line is a measure of our average account rate. So average account rate, that's the way we look at it, you know, as a function of total insured value. So you would take that rate times the total insured value to get the premium.
Greg Peters: Hey, great. Good afternoon. Can we go to page nine of your investor deck?
Greg Peters: and which is the, you know, the rate trend and when the dumped bowl. Henry Dezellem.
Greg Peters: It looks like it's down, but I'm just want to make sure I'm leading the turret right.
Greg Peters: So average account rate, that's the way we look at it, you know, as a function of total insured values. So you would take that rate times the total insured value to get the premium. And as you can see from essentially at their record or 2024 through...
Bennett Martz: And as you can see from essentially the third quarter of 2024 through the end of the first quarter of 2025, it's been relatively stable. The real decrease, you know, occurred, you know, we peaked off of sort of record high rate levels and set that high watermark back in December of 2023. And, you know, since then, we've come back down to more normal levels. But even at, you know, close to $1, it was $0.97 here shown in this chart as of March 31, you know, that that's that's a pretty healthy rate level relative to our historical, you know, premiums. So, we still feel good about rate adequacy.
Robert Peed: at the end of the first quarter, 25. It's been relatively stable. The real decrease, you know, occurred. You know, we peaked.
Greg Peters: off of sort of record high rate levels, and set that high watermark back in December of 2023.
Greg Peters: and you know since then we've come back down to more normal levels but even at you know close to a dollar it was 97 cents here shown in this chart as of March 31st you know that that's...
Greg Peters: That's a pretty healthy rate level relative to our historical premiums. So we still feel good about rigged adequacy. We're watching the trend in average wind deductible, which is represented in the bar charts below.
Greg Peters: We're watching the trend in average wind deductible, which is represented in the bar charts below, very carefully, because obviously if you're giving up premium and you're assuming more risk via lower deductibles, you know, that is not necessarily a great combination. But, you know, it's, like I said, a competitive market. We're pushing hard, especially in areas like Tri-County where we're definitely focused on maintaining, you know, 5% wind deductible. but outside of the tri-county area, you know, we have a little bit more latitude depending on where the risk is. Great. Thanks for walking us through that.
Greg Peters: You're giving a premium and you're assuming more risk via lower deductibles, you know, that is...
Greg Peters: Not necessarily a great combination but you know it's like I said a competitive market we're pushing hard especially in areas like Tri-County where we're definitely focused on maintaining you know 5% wind deductibles.
Great, thanks for for walking us through that.
Greg Peters: when when and then and then I wanted to the other the other question that you started covered in your call and your in your comments were the you know the slide 12 which is the reinsurance. I don't I don't remember seeing a third event. sort of cover in your previous cap program. So is something changed? Or is this just more of the concept of the cascading feature coming down? And I'm just curious, with the other the other aspect about it is, you know, this does not include reinstatement costs. So how is that shaping up this year in terms of year over year comparison?
Speaker Change: And then I wanted to have the other question that you started covered in your call and your comments were the slide 12 which is the reinsurance.
I don't I don't remember seeing the third event.
Speaker Change: and I'm just curious with the other aspect about it is, you know, this does not include reinstatement costs, so how is that shaping up this year in terms of year-over-year comparisons?
Bennett Martz: Okay, starting with reinstatement costs. Last year, we had a reinstatement exposure of about $13 million-ish, something like that. This year, it's only expected to be about $5 million, so we've dramatically reduced the reinstatement premium exposure, assuming all the layers had to be reinstated, so that's a big improvement year-over-year. And last year, we did have third event covered. It was definitely more limited, and the retention for a third event last year was $13 million, so it was $20.5 million, then $13 million for second, and then $13 million for a third, for a total of $46.5 million for three events.
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that's
Speaker Change: A big improvement year over year. And last year we did have third event covered. It was definitely more limited. And the retention for a third event last year was 13 million. So it was...
Speaker Change: 20 and a half, then 13 per second, and then 13 for a third, for a total 46.5 for three of them.
Bennett Martz: But Yeah, it was much more limited. The major enhancement this year is that the cap bond we did back in January, the $200 million excess of $50 million is something, and that is correct the way it's drawn, it just drops down for subsequent events. That's improving our sideways protection and the overall aggregate coverage. Same with Layer 5, it's going to be a top or drop feature. We're still negotiating final positions on that layer, so we'll ultimately, obviously, update this very soon and specify the final exhaustion point and return times, etc.
but...
Speaker Change: is something and that is correct the way it's drawn, it drops down for subsequent events that some proving are sideways protection and the overall aggregate coverage same with layer 5 is going to be a top or drop.
Speaker Change: positions on that layer. So, you know, we'll ultimately obviously update this very soon with and specify the final exhaustion point and return times, et cetera, but overall very pleased with how this has come together.
Bennett Martz: But overall, very pleased with how this has come together.
Greg Peters: Yeah, um, just a question, the follow up question on the 200x of 50.
Bennett Martz: When that drops down, how far does that will that drop all the way down to layer one? Or does it drop? How far down does it drop in the event of earlier layers being exhausted from the storm. It's exactly as it stated. So it's doing a million excess You know, the rest of this protection is inherent to it, but assuming that protection were to be... You know, the reality of the where what attaches about the 300 million mark.
Those are your layers being exhausted from the storm.
It's, it's...
Speaker Change: Exactly as it stated, so it's 200 million XS of 50.
Gone.
Speaker Change: You know, the reality of the where it would attach is about the 300 million mark.
Bennett Martz: Assuming you've fully reinstated Layer 1 and Layer 2, the cap bond would drop down to the $300 million mark for a second event. And then for a third event, obviously if you did not have a reinstatement for Layers 1 and 2, which were 1 and 100, then it would drop down to 50.
Greg Peters: Perfect.
Greg Peters: The last question I have. Yeah, thank you. Thanks for for filling in some, some gaps there.
Speaker Change: Perfect. The last question I have. Yeah, thank you. Thanks for filling in some some gaps there. What what the last question I have for you is just you know, I know one of the newer initiatives is the apartment building the apartment initiative. Can you give us an update on how that's progressing?
Bennett Martz: Um, what what I the last question I have for you is just, I know one of the newer initiatives is the apartment building, the apartment initiative. Can you give us an update on how that's progressing? Yeah, it's going well. Through the first four months of the year, we've averaged about 15 policies, 15 binds a month, obviously quoting more than that and seeing a lot more submissions than that. But it's been good. Average premiums, you know, a little over $100,000. So if you were to annualize the first four months, that would put us, you know, somewhere between $18 and $20 million, pretty consistent with our target.
Speaker Change: Yeah, it's going well. We've, uh, through the first four months of the year, we've averaged about 15 policies, 15 binds a month, obviously quoting more than that and seeing a lot more submissions than that.
Speaker Change: But it's been good. Average premiums, you know, a little over $100,000. So if you were to annualize the first four months, that would put us...
You know, somewhere between 18 and 20 million dollars, pretty consistent with our target. Don't know if that's a feasible thing to do that just annualize those four months, given the seasonality of the book and the upward trend.
Bennett Martz: Don't know if that's, you know, a feasible thing to do to just annualize those four months, given the seasonality in the book and the upward trend and what we're trying to do in growing that portfolio. But we're seeing very good risks. AAL to premium ratio, for example, is very much spot on in line with the new business and the renewal business we wrote in the condos. So, and the PML to TAV and the expected profit margin as modeled is also very, very attractive relative to the condos. We're getting good spread of risk, helping to diversify our portfolio.
Speaker Change: and what we're trying to do and growing that portfolio. But we're seeing very good risks. AAL, the premium ratio, for example, is very much spot on in line with the new business and the renewal business we wrote in the condos.
Speaker Change: So, and the PML, the TAB and the expected profit margin as modeled is also very, very attractive, relative to the condos. We're getting good spread of risk.
Bennett Martz: A lot of this business is coming in Central and Northeast Florida where we're underweight in condos. Tends to be a lot further inland as well. A lot of new construction. So the risk characteristics are very nice. So we've got a pretty extensive set of underwriting guidelines related to valuation requirements and location and occupancy and height and, you know, so on and so forth. But we're pretty happy. The only thing I would suggest is that it is a, you know, it's a pretty competitive market. Much more so than we expected. And, you know, we're trying to be selective.
Speaker Change: of helping to diversify our portfolio. A lot of this business is coming in central and northeast Florida where we're underweight.
very nice. So we've got a pretty extensive
Speaker Change: You know, it's a pretty competitive market, much more so than we expected and...
Bennett Martz: So I want to manage expectations about this being, you know, a hyper growth opportunity. It's not. We're going to move very carefully and cautiously and slowly to build the best portfolio we can that's going to produce, you know, similar underwriting returns to what we've accomplished on the condos.
Speaker Change: You know, we're trying to be selective. So I want to manage expectations about this being, you know, a hyper-growth opportunity. It's not. We're going to move very carefully and cautiously and slowly to build the best portfolio we can that's going to produce, you know.
Speaker Change: Similar underwriting returns to what we've accomplished on the condo side.
Greg Peters: Makes sense. Thanks for your answers. You're welcome.
Makes sense, thanks for your answers.
Welcome.
Bill Dezellem: Next question today is coming from Bill Dezellem from Titan Capital. Your line is now live. Thank you. Two questions. First of all, how are you thinking about quota sharing going ahead, and specifically about lowering that quota sharing amount? Hi, Bill. I can take that. We are very pleased with the result this year with the quota share stepping down from 20% to 15%. We have not made any formal decisions yet relative to 2026. So the quota share will be, the external quota share will be 15% from June 1st, 2025 to May 31st, 2026. And, you know, ultimately, I think it could go lower.
Speaker Change: Thank you. Next question today is coming from Bill Dezellem from Tyton Capital, your line is now live. Thank you. Two questions. First of all, how are you thinking about quotas sharing going ahead and specifically about lowering that quotas sharing amount?
Speaker Change: Hi Bill, I can take that. We are very pleased with the result this year with the quota which year is stepping down from 20% to 15%
We have not made any formal decisions yet.
Bennett Martz: It just depends on, you know, costs and availability of reinsurance in those lower layers. I think that's something we will take into account as well as the broad support provided by ARCH across all our layers and all our programs. They've been a terrific supporter of American Coastal and we appreciate that very much. So there are some qualitative and quantitative factors to consider before we adjust that lower.
Speaker Change: I think that's something we will take into account, as well as the broad support provided by ARCH, across all our layers and all our programs. They've been a terrific supporter of American Coastal and we appreciate that very much.
Speaker Change: There are some qualitative and quantitative factors to consider before we adjust that lower. One thing we didn't mention is that we are increasing the internal quotas here.
Bennett Martz: One thing we didn't mention is that we are increasing the internal quota share. from 30% to 45%. So we are going to be feeding a lot more business to the captive, which is building a pretty healthy balance sheet as a result. So for the statutory insurance company, that's going to continue to keep risk-based capital very high, its net retention lower than the group as a whole, and help protect the regulated entity while accumulating additional underwriting profits.
building a pretty healthy balance sheet as a result.
Bennett Martz: Capital Flexibility in the CAF.
Capital Flexibility in the Captives.
Bill Dezellem: Great, thank you. And then, would you please discuss the AMRSC management fee and the contractual change that you all have there? Sure, there were two changes made to that and when we negotiated the extension, there was a profit sharing component added to the AmRisk. agreement that both sides are very happy with. And we also increased the total percentage. There's two parts. There's an administration part and a claims part. But those two pieces combined went up 1%. So that's 1% of premium written. And most of that 1% increase was passed on to producers. In softening market conditions, that's typically what happens as premiums start to go down.
Speaker Change: Great, thank you. And then would you please discuss the Am risk management fee and the change, contractual change that you all have there.
Svetlana Castle, Robert Peed, Bennett Martz
Agreement that both sides are very happy with.
and we also...
Speaker Change: increase the the total percentage of there's two parts there's a
Speaker Change: Administration, part and a claims part, but those two pieces combined went up 1%, so that's 1% a premium written, and most of that 1% increase was passed on to producers.
Speaker Change: in softening market conditions. That's typically what happens is premium start to go down commission rates.
Bennett Martz: Commission rates need to go up to maintain level revenues for our key producing partners. And obviously the opposite is true in the harder markets where rates are going up and commission rates can go down to maintain sort of normalized growth and commission revenue for producers.
Speaker Change: Commission rates can go down to maintain sort of normalized growth and commission revenue for producers.
Bill Dezellem: Great, thank you and congratulations on another solid quarter. Thank you.
Great. Thank you and congratulations on another solid quarter.
Operator: We've reached the end of our question and answer session.
Thank you.
Speaker Change: Thank you. We reach into our question and answer session. And ladies and gentlemen, that does conclude to these telecomments and webcasts. Let me just connect your lines at this time and have a wonderful day. We thank you for your participation today.
Operator: And ladies and gentlemen, that does conclude today's teleconference and webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.